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Competition (Amendment) Act 2006

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Competition (Amendment) Act 2006 TABLE OF CONTENTS 1. Introduction p.4 2. The Groceries Order - Legal Background p.7 3. The Fair Trade Commission Report 1991 p.17 4. Summary of Submissions on the Groceries Order p.20 5. Independent Study on Impact of the Groceries Order p.34 6. Arguments in favour of retaining the Groceries Order p.39 7. Arguments against retaining the Groceries Order p.77 8. Conclusion and Proposals p.95 Appendix A Report of DKM Economic Consultants Limited entitled “Economic Impact on the 1987 Groceries Order”. 1 FOREWORD One of the faintly bizarre aspects of the public policy debate on competition law is the passion aroused by the only left-over remnant of the old Restrictive Practices regime, namely the Groceries Order. Its best known feature is the ban on below invoice price selling (commonly, if somewhat inaccurately, referred to as 'below-cost-selling') and it is this feature which arouses the most controversy. However, as highlighted in particular in Chapter 6 within, some of the other provisions of the Groceries Order (such as those relating to suppliers’ terms and conditions and the ban on “hello” money, sometimes referred to as “fair trade” provisions) are also capable of generating controversy. A further peculiarity of the debate on the Groceries Order is that its legal status is such that it cannot be amended. It can only be either left intact or repealed in its entirety. As explained in Chapter 2 within, this is because the order was made under the Restrictive Practices legislation which was repealed by the Competition Act 1991. The Commencement Order bringing the 1991 Act into force seems to have created an exception in relation to the repeal of the Groceries Order which would otherwise have followed. However, since the parent legislation has been repealed, no variation of the existing Groceries Order can be introduced within the Restrictive Practices framework. Among the arguments canvassed in the within discussion document is the possibility of repealing the Groceries Order but introducing specific legislation to deal with such aspects of the grocery trade as are thought to warrant some form of “fair trade” regulation. As noted in the conclusion section within, the Review Group was divided on the question of whether or not the Groceries Order should be repealed. This reflects a division which has been apparent for many years in the debate which has taken place within industry and amongst academics on the Groceries Order. Some may find it puzzling as to why prolonged debate among rational, intelligent and well-intentioned persons over the years has been unable to produce a consensus. In part, this may be explained by the fact that, as noted in the independent report by DKM Economic 2 Consultants Limited (Appendix A), much of the empirical data which would be necessary to pronounce definitively on the issues raised is simply not available. Another explanation proffered in the within discussion is that the Groceries Order is favoured (though not exclusively) by particular and focused interest groups whereas those against the Order have no sharply defined point of opposition. Advocates of its abolition therefore tend to be economists, both academic and in independent practice. Whatever may be the true explanation for the divergence of views on the Groceries Order, it is fair to say that this divergence was mirrored amongst the members of the Review Group. The Groceries Order is not specifically mentioned in the Review Group’s terms of reference. It is only of relevance to the Review Group’s work insofar as it bears upon the effectiveness of competition law. The Groceries Order is the single topic upon which the Review Group received the most submissions. The arguments for and against are canvassed extensively in the within discussion document. While comments and submissions are invited, as set out in the introduction, in accordance with our customary procedure, it would be helpful to the time scale of the work of the Group if further submissions in respect of the within document were restricted to points that have not been adequately ventilated already in the submissions to the Review Group and in the within document, as distinct from merely repeating points which have already been made. Michael M. Collins Chairman Competition and Mergers Review Group December 1999 3 1. Introduction The terms of reference of the Competition and Mergers Review Group are: to review and make recommendations on: ! the mergers legislation in the context of legislative consolidations; ! the effectiveness of competition legislation and associated regulations; ! cultural matters in the context of the Competition Act, 1991 and in particular Section 4(2) of that Act; and ! appropriate structures for implementing the above legislation. The Group, chaired by Mr. Michael Collins S.C. is currently made up of the following members: IBEC Mr. Owen Killian Mr. Myles O’Reilly ISME Mr. Robert Berney ICTU Mr. Paul Sweeney The Bar Council Mr. David Barniville The Law Society Mr. Gerald FitzGerald Consumers Association of Ireland Mr. Peter Dargan Department of Enterprise, Trade & Employment Mr. Barry Harte Economist Mr. Moore McDowell Office of the Attorney General Mr. Damien Moloney The Group has published three discussion papers.1 This discussion paper focuses on the Restrictive Practices (Groceries) Order, 1987 (the “Groceries 1 The first discussion paper, published in July 1998, contained proposals for discussion in relation to mergers. The second discussion paper, published in February 1999, contained proposals for discussion in relation to some recommendations of the Report of the Commission on the newspaper industry. The third discussion document, published in September 1999, contained proposals for discussion in relation to competition law and is primarily concerned with possible legislative changes which might assist in improving the effectiveness of competition law in Ireland. 4 Order”) 2. The Group’s examination of the Groceries Order arises from the context of its review of the “effectiveness of competition legislation and associated regulations” in its terms of reference. The Group published advertisements which called for submissions from the public on issues relevant to its terms of reference. Several submissions were received concerning the Groceries Order. The submissions by number of these interested parties will be referred to and considered later in this paper. Submissions were received on the Groceries Order from the following: 1. IBEC - Competition Council; 2. IBEC - Food, Drink and Tobacco Federation; 3. Irish Co-Operative Organisation Society Limited; 4. Barry Doherty (a member of the European Commission Legal Service but writing in a personal capacity); 5. Irish Farmers Association; 6. RGDATA, IADT and SSRF; 7. An Bord Glas (Horticultural Development Board); 8. A fruit and vegetable distributor; 9. Dr. Patrick Walsh and Ms. Ciara Whelan (Department of Economics, Trinity College, Dublin); 10. Dr. John Fingleton (Department of Economics, Trinity College, Dublin); 11. Competition Authority; 12. William P. Fagan (Former Director of Consumer Affairs). Following a meeting of the Group in February 1999 it was agreed that the Group should retain an economist to carry out a study on the economic impact of the Groceries Order and to report to the Group with the results of that study. It was agreed that the study should be conducted by an economist who was totally independent and who was not perceived as having previously taken a position in relation to the Groceries Order. DKM Economic Consultants Limited (“DKM”) was retained to carry out the study. DKM initially reported 2 S.I. No. 142 of 1987. 5 to the Group in August 1999 and presented its final report in October 1999. DKM recommended that the Groceries Order should be repealed in its entirety. The nature and extent of the study by DKM and its conclusions will be addressed later in this paper. A copy of the DKM report is to be found at Appendix A. Following a meeting of the Group to discuss the Groceries Order, and in particular, the DKM report, a member of the Group, Myles O’Reilly (Secretary to the IBEC Competition Council) agreed to prepare a paper which would set out the arguments in favour of the retention of the Groceries Order. A slightly amended version of Mr. O’Reilly’s paper is included as Chapter 6 of the present document. It reflects the IBEC submissions and comments on the DKM report. Chapter 7 contains contrary arguments based largely on the work of two economists, Patrick Walsh and Ciara Whelan who have extensively analysed the Groceries Order and have argued for its abolition. Dr. Walsh and Ms. Whelan also made submissions to the Group. This discussion document will commence with an examination of the terms of the Groceries Order. It will then refer to and briefly consider previous studies. It will then summarise the submissions made to the Group by various interested parties and bodies. It will then refer to and consider the DKM report. A summary of the arguments for and against retaining the Groceries Order follows as referred to above3. The paper concludes with the Group’s draft proposals for discussion. Comments and submissions on the within proposals should be made in writing to the Secretary of the Group, Ms. Grace O’Regan at the Department of Enterprise, Trade and Employment to arrive on or before Monday the 24th of January 2000. 3 It will be appreciated that Chapters 6 and 7 do not, in themselves, reflect the views of the Group as a whole but rather summarise the respective positions of those for and against retaining the Groceries Order. 6 2. The Groceries Order - Legal Background The Groceries Order was made by the then Minister of Industry and Commerce in exercise of powers conferred by Section 8 of the Restrictive Practices Act, 1972 following a review of the operation of the earlier Restrictive Practices (Groceries) Order, 1981 by the Restrictive Practices Commission.
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